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Stores Lost Millions in Holiday Sales, Now More Markdowns Loom

Weather Woes and Lackluster Product Cost Retailers

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Temperatures have finally reached seasonal norms in the Northeast, but the damage of a warmer-than-usual November and December has cost retailers. Warm weather cost stores $572 million in sales between Nov. 1 and Dec. 31 compared with the same period last year, according to Planalytics, which provides weather analytics for businesses. Much of those dollars came from winter apparel and accessories such as parkas, coats, hats and sweaters, which have now been heavily marked down.

Experts predict the discounting will only continue as stores try to move out cold weather merchandise to make room for spring inventory, which should arrive next month.

"It's one of the few times where you can see a clearance sale for most retailers where they have all the styles, all the colors, all the sizes available," said Steve Osburn, a retail strategist at consultancy Kurt Salmon. He noted that most retailers don't have warehouse space to hold back spring inventory. "Even if the consumer was willing to pay higher prices for winter goods later in the season, retailers just don't have any space to hold the stuff once it shows up."

While that could mean good news for bargain-hunting consumers—Gap boasts a winter sale of 75% off on its homepage, for example—it means even more margin loss for the already struggling apparel sector.

Furthermore, most clothiers have done little to inspire the consumer with fresh trends and must-have items. "Retailers have not done their job in providing newness, novelty and fashion," said Richard Jaffe, a retail analyst at Stifel Nicolaus, on a recent conference call. "As a result, sales have suffered."

Overall, retail sales for the holiday season were up 7.9% over last year, according to MasterCard SpendingPulse, with the bulk of spending coming from furniture and e-commerce. The latter category grew 20% over last year. Yet Mr. Osburn cautioned that while e-commerce is a fast-growing category, its gains don't necessarily translate to more profit for stores. Promises to consumers, such as free shipping, often lead to higher shipping expenses for brands.

"Retailers are going to continue to struggle with profitability as online volume grows," said Mr. Osburn.